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Chart in Focus: Self-Storage REITs’ 2Q17 Balance Sheets

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Aug. 25 2017, Published 9:32 p.m. ET

Self-storage REIT sector in 2Q17

Self-storage REITs carry on a variety of developments and expansion projects. Apart from repositioning properties into Class A cities, they also work to acquire premium self-storage facilities to tap the growing demand for storage space across the country.

These REITs fund development projects with the help of equity and debt funding. However, too much dependence on funding may result in increasing the cost of debt and, at the extreme, could lead to the liquidation of the company. So, it’s extremely important for a REIT to lever its balance sheet in an optimal manner.

Let’s see how the top three self-storage REITs managed their balance sheets during 2Q17.

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PSA’s 2Q17 balance sheet position

Public Storage (PSA) exited 2Q17 with cash and cash equivalents of $358.3 million and total liabilities of ~$1.0 billion. The company took up refinancing activities during 2Q17. It issued preferred shares with an interest rate of ~5.2% that generated gross proceeds of $280.0 million.

Further, the company redeemed Series S preferred shares carrying 5.9% interest for $460 million along with accrued dividends. These financing activities helped the company strengthen its balance sheet by reducing the weighted average interest rate.

EXR’s liquidity in 2Q17

In 2Q17, Extra Storage (EXR) had $349.4 million available for issuance under its stock repurchase program. The company also made a private placement of $300.0 million carrying a 3.95% interest rate and a ten-year maturity.

EXR’s ratio of fixed-rate debt to total debt was 76.1%. The combined weighted average interest rate was 3.2% with a weighted average maturity period of 4.4 years.

CUBE’s balance sheet in 2Q17

CubeSmart issued two notes of $50.0 million each, carrying interest of 4.4% and 4.0% and maturity dates of 2023 and 2025, respectively. CUBE used the proceeds to repay debts that were scheduled to mature in 2018.

These three REITs comprise 22% of the Vanguard REIT ETF (VNQ). VNQ has an expense ratio of 0.12%.

The iShares Trust – iShares Residential Real Estate Capped ETF (REZ) has 100% exposure to REITs. EXR, PSA, CUBE, and Equity Residential (EQR) constitute 22% of its holdings. REZ has a yield of ~4.4%.

In the next article, we’ll have a look at the capital deployment strategies of the three REITs.

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